AUD/USD drops to July 2020 levels near 0.6950 as inflation, growth concerns propel fear trades

• AUD/USD remains pressured at the lowest levels in nearly two years as risk-aversion dominates.
• Growing concerns that higher inflation and tighter monetary policies will weigh on economic growth favored bears.
• Headlines from China, Russia offered additional clues to spread the pessimism.
• Aussie NAB Sentiment data, Fedspeak may entertain traders but risk catalysts are the key ahead of Wednesday’s US CPI.

AUD/USD bears keep reins around 0.6950, the lowest levels since July 2020, after heavy risk-off mood pressured the pair towards printing a three-day downtrend to test a multi-month low. That said, the Aussie pair trades sideways during the initial hours of Tuesday, following the notable downside portrayed on Monday.

Boosting the market’s fear were growing concerns over the economic growth as inflation pushes central bankers towards tighter monetary policies. Also contributing to the sour sentiment, as well as weighing on the risk-barometer pair, were worsening covid conditions in China and Russia’s ignorance of global ire over the invasion of Ukraine.

A softer import of metals by China and further tightening of activity restrictions in Shanghai, as well as Beijing, due to the faster spreading coronavirus variant, signaled further challenges for the global supply chain and the hardships for commodity prices. Iron ore, Australia’s key export dropped more than 6.0% and contributed to the AUD/USD pair’s slump the previous day.

Elsewhere, Russia’s victory parade pushed traders towards expecting further geopolitical hardships in Ukraine as Moscow expects “results of special operations”, showing no readiness to curtail the military operations despite Western sanctions.

Also adding its part to the AUD/USD pair’s declines were mostly hawkish comments from the Fed policymakers. Richmond Fed President Thomas Barkin kept the 75 bps rate hike on the table while Atlanta Fed’s Robert Bostic promoted a series of 50bps rate lifts.

Amid these plays, Wall Street saw the red but the US Treasury yields failed to cheer the risk-off mood, despite refreshing multi-day high earlier on Monday. Further, the US Dollar Index (DXY) rose to the highest in 20-year amid a flight to safety.

Moving on, the National Australia Bank’s (NAB) Business Confidence and Business Conditions for May will direct short-term AUD/USD moves ahead of the comments from the scheduled Fed speakers. However, major attention will be given to how the traders react to the fears of rising inflation and growth, as well as headlines from China and Russia. That said, the NAB Business Confidence is expected to ease to 14 from 16 whereas the Business Conditions may rise from 18 to 23.

Technical analysis

With a clear downside break of the yearly low surrounding 0.6965, AUD/USD becomes vulnerable to testing June 2020 bottom near 0.6775. During the fall, the 0.6900 and 0.6800 round figures may offer intermediate halts.